Chart of the day: tax burden in the US and globally

Despite the widespread view in the US that taxes are high, taxes in the US are relatively low both in the global and historical context. These two charts from the Globe & Mail make that plain

What About Currency Revulsion?

The normal case—let us say, in the US or the UK or Japan—is that anything for sale is for sale in the domestic currency. These sovereign governments never find that they cannot buy something by issuing their own currency. However, the situation can be different in developing nations in which foreign currencies might be preferred for “private” transactions (payments that do not involve the sovereign)

On Voodoo Economics, the Debt Ceiling Debate, and Hyperinflation

If you recall, it was George W. Bush’s father, GWH Bush, who, when campaigning against Reagan, called supply side economics’ claims that tax cuts pay for themselves Voodoo Economics. And Bush was proved right when deficits spiralled out of control and both Reagan and Bush were forced to raise taxes. Yet, the Republicans of today are acting like none of this is true

Taxes Drive Money

The government is then able to issue a currency that is also denominated in the same money of account, so long as it accepts that currency in tax payment. It is not necessary to “back” the currency with precious metal, nor is it necessary to enforce legal tender laws that require acceptance of the national currency. For example, rather than engraving the statement “This note is legal tender for all debts, public and private”, all the sovereign government needs to do is to promise “This note will be accepted in tax payment” in order to ensure general acceptability domestically and even abroad

USA Debt Crisis: Is There Any Truth?

Last week the NY Times covered the division within the economic community over the way out of the USA’s overspending / balance budgeting.

“Reasonable people can sit down and, apart from any political or policy motivations, come up with different answers,” said Robert S. Chirinko, a finance professor at the University of Illinois at Chicago who studies corporate taxation.

No doubt this is true. The economic community’s solutions range from more deficit spending stimulus (on the theory that boosting the economy will boost tax revenues to balance the budget) to out-and-out cutting spending (on the theory that re-balancing, while causing short-term pain, will spur long-term growth). Both extremes have some basis in main stream economic studies

How does fiscal consolidation affect the economy?

The research presented below from the IMF from October 2010 “finds that fiscal consolidation typically reduces output and raises unemployment in the short term. At the same time, interest rate cuts, a fall in the value of the currency, and a rise in net exports usually soften the contractionary impact.”

Tax Holiday: Homeland Investment Charade

It is not clear that there is a political consensus for a stand-alone tax holiday. There may be support for the stand-alone tax holiday as part of a larger corporate tax reform effort. If it is enacted, job growth and capital investment is unlikely to be aided, if for no other reason than the lack of capital is not the reason for the jobless recovery and sluggish investment

The Harrison Plan for Greece

Evangelos Venizelos is dispatched to consider how to prevent the government from sacking tens of thousands of workers in order to prevent the Greek from defaulting on its debt. He suggests that California’s previous IOU issuance is a model for Greece. But he goes one step further in emphasising that the IOUs can be used to expunge a tax liability to the Greek government and by adding a redemption in 5 years at a 40% premium to the present spot price for gold, which represents a 7% annual return

The Mosler Plan for Greece

The following is an outline for a proposed new Greek government bond issue to provide all required medium term euro funding for Greece on very attractive terms. The new bond issue includes an addition to the default provisions that eliminates the risk of loss to investors. The language added to the default provisions states that while in default, and only in the case of default, these transferable securities can be used directly, by the bearer on demand, at face value plus accrued interest, for payment of any debts, including taxes, owed to the Greek government

The Continuing Eurozone Extend and Pretend

Short of a fiscal union, there are other measures which the Greeks could adopt to make their bonds more attractive to external investors, thereby preventing the markets shutting the country down and refusing to extend further credit to a insolvent country. Warren Mosler and I have suggested Greece could place new debt by inserting a provision stating that, in the event of default, the bearer on demand can use those defaulted securities to pay Greek government taxes. This makes it immediately obvious to investors that those new securities are ‘money good’ and will ultimately redeem for face value for as long as the Greek government levies and enforces taxes. This would not only allow Greece to fund itself at low interest rates, but it would also serve as an example for the rest of the euro zone, and thereby ease the funding pressures on the entire region

Money and Trading 101

When we tighten our belts, it means that we are trying to build up our savings. We do this by spending less. But spending drives our economy. Sales create jobs. So unless Obama has a secret plan to reverse three decades of current account deficits, the Government needs to loosen its belt when we tighten ours. If it doesn’t, then millions of us will lose our shirts

The World’s Supply and Demand for Coal

Coal prices are surging ahead even as most other commodities pull back, spurred on by expectations that metallurgical and thermal coal production will again fail to meet rising global demand this year. The result? Record profits for major coal producers like Xstrata, a surge in acquisitions from coal-hungry India, Chinese electricity shortages, and a raging carbon tax debate in Australia amid record investments in that country’s coal-heavy mining sector